President Donald Trump’s wish list for acquiring new U.S. territories has one thing in common: regions with abundant supplies of critical minerals. Trump has repeatedly threatened to acquire Greenland, a mineral-rich Danish territory. Canadian Prime Minister Justin Trudeau has warned that Trump’s threat to make Canada the 51st state should be taken seriously, noting Trump is interested in Canadian minerals.
Meanwhile, the U.S. president has suggested a minerals-for-aid “deal” with Ukraine, drawing pushback from Russia. It, therefore, came as little surprise that a call between Trump and Australian Prime Minister Anthony Albanese earlier this week wherein they discussed trade issues quickly sparked the concern of China, a key importer of Australian minerals as well as a leading supplier of critical minerals to the U.S. Australia is a vital source of natural resources for China, providing 60 per cent of the country’s iron ore imports.
For decades, Australia has been the upstream mineral supplier, whereas China has dominated the refining and processing of minerals for the global market. China has consistently been the largest buyer of Australian raw minerals, with Chinese investors like Tianqi and Ganfeng providing long-term capital to support and expand mining capacity in Australia. Australia is a major supplier of minerals used to make batteries for electric vehicles, with China’s Tianqi Lithium holding a large stake in the lithium hydroxide plant in Kwinana, Perth. In this context, Australia depends on China while Chinese processors also depend significantly on Australia.
On the other hand, the U.S. and the West have been struggling to lower their reliance on China for critical minerals. The Inflation Reduction Act (IRA) of 2022 took bold steps towards promoting U.S. production of critical minerals, with a dual-pronged goal of supporting a rapid energy transition and lessening U.S. reliance on China and Russia, two countries the U.S. Department of Energy has tagged “foreign entity of concern” (FEOC). According to the United States Geological Survey, China accounts for 70% of global rare earth mining and 90% of refined output.
Unfortunately, decoupling from China’s sprawling renewable energy sector is proving to be easier said than done with the country tightening its grip on the industry. The Middle Kingdom has been using its overwhelming dominance in rare earth elements (REE’s) and critical clean energy minerals to kick out Western competitors and protect its market share. Chinese producers have been flooding the markets with REE and battery metals like lithium, leading to big price crashes and making it untenable for competitors to continue operations. Since last year, lithium is down by more than 80 percent, while nickel and cobalt have both tumbled over 40 percent.
In response, miners from Australia to Canada have been forced to cut production, pull back on investment plans and initiate layoffs. Even larger producers such as Las Vegas, Nevada-based rare earths miner MP Materials (NYSE:MP) and its Australian peer Lynas Rare Earths (OTCPK:LYSCF) (OTCPK:LYSDY) are barely hanging on, and their shares have crashed.
Beijing is doing everything in its power to thwart attempts by Western governments at independence. Since 2006, Beijing has controlled its supply of rare earths through the quota system. In 2023, China issued three batches of rare earth output quotas, the first time it issued three quotas in a single year since it started the quota system. The total quota for 2023 clocked in at a record high of 255,000 tons, good for a scorching 21.4% Y/Y increase. Beijing has also significantly tightened rules guiding exports of several critical metals and minerals, including a ban on the export of technology to make rare earth magnets, escalating an earlier ban on export of technology to extract and separate critical materials. China's commerce ministry sought public opinion on a potential ban on export of technology to prepare neodymium-iron-boron magnets, samarium-cobalt magnets and cerium magnets ostensibly to protect national security and public interest.
"China is driven to maintain its market dominance. This is now a race," Don Swartz, CEO of American Rare Earths (ARR.AX), told Reuters.
The intensifying US–China geopolitical rivalry spilled over into the critical minerals realm years ago, creating the so-called ‘security-sustainability nexus’ – the linkage between state security concerns and the transition to green energy.
Australia Leans to Western Allies
That said, the move to forge stronger alliances on critical minerals supply chains between the U.S. and Australia actually kicked off in earnest during the Biden presidency. The era when Australia declared that Canberra ‘can maintain a close strategic alliance with the U.S. while also enhancing its friendship with China’ is now gone. By joining the AUKUS (Australia–UK–US) security pact in September 2021, with an unmistakable anti-China alignment, Australia gave up on maintaining a balance between its cooperation with China and its alliance with the U.S. According to former Australian Prime Minister Paul Keating, ‘we [Australia] are now part of a [US] containment policy against China’.
As the U.S. targets China’s involvement in Australian critical minerals as a part of its strategy to de-risk its supply chains from China’s dominance, it has extended the application of its subsidies to ‘friendly’ and ‘like-minded’ countries, among which Australia has emerged as a critical country of interest. The Biden administration promised to designate Australia as a ‘domestic source’ of minerals under the Defense Production Act, allowing Australia to benefit from the $369 billion IRA clean energy incentive.
It will be interesting to see how the Trump administration will work with Australia to strengthen America’s critical mineral supply chains. Trump has repeatedly lambasted the IRA, describing it as the “biggest tax hike in history”. Trump pledged to rescind any “unspent” funds under the IRA should he ascend to the Oval Office again. “To further defeat inflation, my plan will terminate the Green New Deal, which I call the Green New Scam,” the former president said before the Economic Club of New York in September.
In the same breath, one of Trump's many "Unleashing American Energy" directives requires the Secretary of the Interior to instruct the director of the USGS to "consider updating the survey's list of critical minerals, including for the potential of including uranium." It’s, therefore, likely that the GOP-controlled Congress will not repeal parts of the IRA that support critical minerals, meaning that Australia is likely to become a key supplier of critical minerals to the U.S. in the coming years.
By Alex Kimani for Oilprice.com